The court upheld that assignment of debts between banks is permissible under the Banking Regulation Act, 1949, while procedural violations in sanctioning schemes can be overlooked if majority approval is obtained.

JUDGMENT :

BIREN VAISHNAV, J.

1. This appeal at the hands of the Kotak Mahindra Bank has been filed under Section 483 of the Companies Act, 1956 (‘Companies Act’ for short) against the oral judgement dated 16.05.2008 passed by the Company Judge in Company Petition No.166 of 2006. By the judgement so passed, the learned Judge has sanctioned the scheme of arrangement in the nature of compromise between the respondent Shri Narmada Aluminum Industries Limited and its secured creditors, unsecured creditors and share holders.

2. Facts in brief are as under:

2.1 The respondent no.1 company which was incorporated on 15.04.1981 was facing winding up proceedings having faced financial difficulties. In order to pay statutory and contractual dues, the respondent company proposed a scheme of compromise and/or arrangement between the company and its members (share holders, its secured creditors and unsecured creditors). The scheme of compromise and arrangement was required to be sanctioned under Section 391(2) of the Companies Act. The company therefore filed Company Petition No.166 of 2006 for obtaining a sanction and by the impugned judgment, such scheme was sanctioned. It was the case of the appellant Kotak Mahindra Bank that it had been assigned the debts owed by the company to ICICI Bank by a deed of assignment dated 29.09.2004 and therefore it was entitled to participate in the proceedings vis-a-vis the scheme of compromise and arrangement as being a secured creditor. Objections were raised by Kotak Mahindra Bank. The learned Single Judge by the impugned order negated the objections and in para 20 of the order under challenge held as under:

“20. In light of the above controversy between the parties the Court is of the view that the objections raised by Kotak Mahindra Bank Ltd., cannot be taken into account as the Kotak Mahindra Bank Ltd., is an assignee of the debt. Since the issue regarding assignment of debt is pending before the Division Bench, whether the assignee can be considered to be secured creditor is a question to be decided by the Division Bench. If the value of the votes stated to have been held by Kotak Mahindra Bank Ltd., is ignored, it cannot be said that the scheme has not been approved by the requisite majority of secured creditors. Since the scheme has been approved by secured creditors, unsecured creditors and workers and it is beneficial to the interest of the Members and it is not contrary to public interest and the scheme is hereby sanctioned and prayer made in the Company Petition vide para 19 of the petition is hereby granted.”

2.2 In short the learned Single Judge held that the objections raised by the Kotak Mahindra Bank Limited cannot be taken into account as it is an assignee of the debt. Since the issue regarding assignment of debt was pending before a Division Bench, it cannot be said that the scheme has not been approved by the majority of the secured creditors.

2.3 It appears that the issue traveled before the Hon’ble Supreme Court on a Special Leave Petition filed by the bank as the Division Bench by an order dated 16.07.2022 in the present appeal passed certain orders adjourning the O.J. Appeal. The Hon’ble Supreme Court by its order dated 02.12.2022 requested the High Court to hear the pending appeal and the submission was made by the learned counsel for the appellant that the issue was covered by a decision in the case of ICICI Bank v. Official Liquidator of APS Star Industries Limited and others reported in 2010 (10) SCC 1

3. Mr.Tirth Nayak learned counsel for the appellant-bank made the following submissions:

3.1 On the issue of assigning of debts vis-a-vis the company by ICICI Bank to the appellant- Kotak Mahindra Bank, Mr.Nayak would submit that the same is no longer res-integra in light of the decision in the case of ICICI Bank (supra). He would submit that in the aforesaid judgement, the Supreme Court has upheld assignment of debts and held that transfer of debts/NPAs inter-se between banks as an acti